Ratio of Federal Spending to Tax Revenue Favors Low Income States

A study released last week by the nonprofit Tax Foundation found that states with concentrations of higher income taxpayers sent more money to Washington than they got back in federal spending. The study, “Federal Tax Burdens and Expenditures by State,” by Curtis Dubay, compares per capita data from 1994 to 2004.

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New Jersey, the most generous state, received just 55 cents in federal spending for every dollar collected in federal tax. New Mexico, the biggest beneficiary in 2004, receiving two dollars for every dollar collected, was also the largest beneficiary in 1994.

“The main culprit is not lazy congressmen who don’t bring home enough pork, but rather the progressive income tax,” said Tax Foundation President Scott Hodge. “Under today’s multirate tax structure, states with greater numbers of higher-income taxpayers, like California, have more people paying the highest tax rates,” Hodge said, according to recordnet.com.

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Other states with the lowest ratios of federal spending included Connecticut, Nevada, and Minnesota. States with a high ratio of federal expenditures to revenues are Alaska, Mississippi, and West Virginia. Except for an increase in spending in Alaska, the ratios for these states did not change significantly during the decade studied.

States where the ratio of federal spending dropped the most included California, Massachusetts and Colorado. States that saw the greatest increase in federal funds relative to taxes collected were Alaska, North Carolina and Vermont.

Eric Grunder, writing for recordnet.com, questioned whether California’s taxpayers were making that much money. Grunder cites a report issued by the Congressional Research Service that found poverty and unemployment in the San Joaquin Valley in California “rivaled the hardships of Appalachia.” “Many good, hardworking, taxpaying Californians live in areas such as San Joaquin County, where only 14.5 percent of those over 25 have . . . a bachelor’s degree and the median household income is about $41,900,” he writes.

Minnesota is one of the states with the lowest ratio of federal funds, but “I don’t know if Minnesota has anything to lament,” Dubay told the Minneapolis Star Tribune. “It’s never bad to have high income. But high income does bring high taxes.” “There’s no hope that a high income state ever will be able to draw back the same amount of funds they sent to Washington,” he added.

The study breaks total federal expenditures into five categories: retirement and disability, other direct payments, grants to state and local governments, procurement, salaries and wages, and other. “Some federal spending patterns are easily discernible,” the report says. “The large number of retirees collecting Social Security in Florida increases the flow of federal “retirement and disability” funds somewhat. An even bigger difference is created by the disproportionately large federal grants funneled to Alaska and the District of Columbia. On the other hand, direct payments to individuals tend to be more evenly distributed across the country.”

Total federal spending increased from $35 billion in 1994 to $53 billion in 2004 in Massachusetts, even though the state experienced the biggest drop in ratio of federal spending to tax revenue from 1994 to 2004, the North Adams Transcript reports. But federal spending increased in every other state during the same period.

That pattern is not likely to change in the near future, the Washington Post says. Congress voted on Thursday to raise the limit on federal borrowing by $781 billion, and then immediately passed a budget that would increase spending by $100 billion without requiring cuts in domestic programs. “On vote after vote in the House and Senate, lawmakers demonstrated the growing gap between their political promises to rein in spending and their need to respond to emergencies and protect popular programs,” the Post reported.